How to Buy a House in Delaware: 6 Steps

Purchasing a house is a major financial decision that requires careful consideration. In Delaware, the average home value stands at $389,714, which is higher than the national average of $362,481. This difference underscores the importance of financial preparedness when entering the housing market in this state.

Understanding down payment assistance programs, mortgage types, and state-specific regulations can ensure a smooth journey toward homeownership in the First State. MoneyGeek has compiled pointers to help you navigate the homebuying process in Delaware. From saving for a down payment and choosing the ideal location to finding the best financing option for your needs and credit history, these resources aim to make your path to owning a home clear and manageable.

According to the U.S. Census Bureau, the homeowner vacancy rate in Delaware for the second quarter of 2024 was 0.7%. The homeowner vacancy rate measures the proportion of homeowner housing that is vacant and for sale. This metric helps in understanding the availability of housing for potential buyers.

In Delaware, the homeowner vacancy rate of 0.7% indicates insufficient inventory on the market to satisfy homebuyer demand. A stable vacancy rate is around 2%, which provides homebuyers with choice and flexibility. With a vacancy rate below 1%, Delaware's housing market is experiencing high demand with limited options. For homebuyers, this means facing a competitive market where quick decisions and possibly higher offers may be necessary to secure a home.

Before buying a house in Delaware, take a close look at your financial and credit history. A strong financial profile improves your chances of being approved when applying for a mortgage.

Your credit score plays a major role in determining the mortgage loans and interest rates you qualify for. A higher score increases your chances of securing a favorable rate. As of the third quarter of 2023, the average credit score in Delaware was 715, according to Experian.

If you have a poor credit score, defined by FICO as between 300 to 579, buying a house is still possible, though getting approved for a mortgage may be challenging. Check the table below to see which mortgage type is ideal for you based on the minimum credit score requirements.

Source: Experian

Understanding your debt-to-income ratio (DTI) is essential for assessing how much of your monthly income is dedicated to debt payments. Lenders use this percentage to evaluate the amount of mortgage debt you can responsibly manage. In Delaware, the average mortgage debt was $214,984 in the third quarter of 2023, according to Experian. This figure highlights the financial responsibility associated with taking on a mortgage in this region.

Monthly debt payments included in your DTI calculation typically cover obligations like mortgage, credit card, student loans and car loans. Use our debt-to-income ratio calculator below to see your front-end DTI, which reflects the percentage of income going to housing costs and back-end DTI, which includes all debt obligations. This tool will also help you calculate your total monthly debt payments.

Purchasing a home beyond your financial means can lead to significant stress and financial instability. To avoid this, consider the 28% rule, which suggests not spending more than 28% of your monthly income on your mortgage payment. This guideline helps ensure that your housing costs remain manageable and leave room for other expenses.

According to the U.S. Bureau of Labor Statistics, the median annual income in Delaware as of April 2024 was $49,280, translating to a gross monthly income of $4,107 before taxes. Applying the 28% rule, you should aim to spend no more than $1,150 on your monthly mortgage payment. This calculation helps you set a realistic budget and avoid financial strain.

Use our mortgage calculator below to get a ballpark figure of your monthly mortgage payment in Delaware.

A down payment is the initial, upfront payment you make when purchasing a house. It's a crucial step in the home-buying process, often setting the stage for your mortgage terms. Typically, putting down 20% of the home's purchase price is considered standard. Yet, this can be a significant hurdle for many prospective homeowners. In Delaware, where the average home value is $389,714, a 20% down payment amounts to $77,943. For homes priced above average at $420,000, the down payment would be $84,000.

Fortunately, saving up for a 20% down payment isn't mandatory. Many mortgage types offer flexibility, allowing you to put less money down. For instance, VA loans require no down payment, while FHA loans need just 3.5%. These options can make homeownership more attainable for many buyers.

If you opt to put down less than 20%, your lender might require you to take out private mortgage insurance. This insurance protects the lender in case you default on your loan. You can use our PMI calculator to estimate your monthly private mortgage insurance premium based on your credit score and down payment.

Delaware offers several down payment assistance programs designed to make homeownership more accessible. These programs can significantly reduce the initial financial burden, making it possible for more individuals and families to own a home. Prospective homeowners should explore these options to determine which program best suits their needs.

More information on the available down payment assistance programs in Delaware may be found in the table below. You can access the program details through the Delaware State Housing Authority (DSHA).

Finding the right location in Delaware involves considering several key factors. Start by evaluating the average house prices in different areas to ensure they align with your budget. Proximity to family, friends and your workplace or school can significantly impact your daily life, so consider these aspects carefully. Access to public transportation, parks, restaurants, and shopping centers also plays a role in enhancing your living experience.

The cost of living is another factor that influences your decision. According to the Missouri Economic Research and Information Center (MERIC), Delaware's cost of living index for the first quarter of 2024 was 100.9, slightly above the national average of 100. When evaluating potential locations, consider the following essential expenses:

• Food
• Healthcare
• Clothing
• Utilities
• Education
• Transportation
• Entertainment

Check out the table below to see some cities in Delaware and their average home values based on recent data. You can also use our cost of living calculator to help estimate how much you'll need to pay for all the essentials in different locations.

Source: Zillow

Working with a real estate agent can accelerate your house hunt in Delaware. They offer valuable advice, manage paperwork and provide access to property options you might not find on your own. Additionally, agents can recommend service providers such as title companies and inspectors, streamlining the home-buying process.

When finding a real estate agent, conduct thorough research and interview those with experience in your desired neighborhoods. Consider the following tips:

• Find someone compatible with your needs and personality
• Verify the agent's credentials, training and licensure
• Ensure they have in-depth knowledge of the area
• Shop around for agents and compare their rates

Navigating the homebuying process in Delaware involves selecting the most suitable mortgage you can afford. Options include conventional loans, jumbo loans, FHA loans, VA loans and USDA loans. You can choose from 10-year, 15-year, 20-year, or 30-year terms and decide between a fixed-rate mortgage or an adjustable-rate mortgage (ARM). Opting for the best financing option not only boosts your approval chances but also contributes to long-term savings.

Interest rates on a mortgage can change daily due to factors like the type of mortgage, the lender and the economy. It's important to understand the difference between the interest rate and the APR. While the interest rate is the cost of borrowing the principal loan amount, the APR includes both the interest rate and additional costs associated with the loan. This makes the APR a more comprehensive measure of the true cost of borrowing.

As of October 2024, the APR for a 30-year fixed conforming loan in Delaware is 5.91%, while the APR for a 30-year fixed rate FHA loan is 7.86%. To see the current mortgage rates in Delaware by mortgage type, please check the table below.

Getting pre-approved for a mortgage in Delaware can streamline your home-buying process. It involves a lender evaluating your financial situation to determine how much they are willing to lend you. This step can help set a realistic budget and demonstrate your seriousness to sellers. Lenders typically issue a pre-approval letter, which is a formal document indicating your borrowing capacity. This letter is usually valid for 60 to 90 days, giving you a window to find a home.

To obtain a mortgage pre-approval, you'll need to submit several documents. These include:

• Proof of income, such as pay stubs or tax returns
• Credit history report
• Bank statements
• Identification, such as a driver's license or passport
• Details of any outstanding debts

Understanding the difference between mortgage pre-approval and prequalification is essential. Pre-approval is a more in-depth process where the lender verifies your financial information, while prequalification is a preliminary assessment based on self-reported data. Pre-approval provides a more accurate estimate of your borrowing capacity, making it a more reliable indicator for both you and potential sellers.

Home inspections are highly recommended in Delaware's homebuying process because they provide a comprehensive assessment of a property's condition. Inspectors typically examine key areas such as the roof, foundation, plumbing, electrical systems, and HVAC. The inspection report generally includes detailed findings, potential issues, and recommendations for necessary repairs. This information helps buyers make informed decisions about proceeding with their purchase.

For example, an inspection might reveal major issues like a failing roof or outdated electrical systems. Such findings can lower the home's appraisal value, affecting financing options. In some cases, buyers may decide to rescind their offer based on the inspection results, especially if the cost of repairs is prohibitive. Understanding these potential outcomes can help you navigate the homebuying process more effectively.

Home inspections in Delaware fall under the regulation of the Delaware Board of Home Inspectors. This ensures a consistent standard of practice across the state. Home inspectors are required to provide clients with a comprehensive written report. This document should detail the inspection findings, highlight any potential safety hazards, and suggest repairs or further evaluations.

When looking for a home inspector in Delaware, ensure they are licensed. This step is crucial for securing a qualified professional. Consider checking online reviews and asking for references to gauge the inspector's reliability and expertise. You can use DPR's license look-up tool to verify the credentials of home inspectors. These steps will help you make an informed decision and ensure a smooth home buying process.

Home appraisals play a key role in the homebuying process in Delaware, providing an objective assessment of a property's market value. This evaluation helps ensure that the price of a home aligns with its true worth, protecting both buyers and lenders. According to the 2023 Appraisal Survey from the National Association of Realtors, the median appraisal cost in 2023 was $500.

While both inspections and appraisals are integral to purchasing a home, they serve different purposes. A home inspection focuses on the condition and safety of a property, identifying potential issues that may need repair. In contrast, a home appraisal determines the market value of the home. Lenders require appraisals to confirm that the property's value is sufficient to cover the loan amount, reducing their financial risk.

Closing marks the final step in buying a house in Delaware, where ownership officially transfers and you receive the keys to your new property. Your lender will provide a closing disclosure document three days before the official closing. This document details your loan terms, projected monthly payments, and closing costs. Plan a final walk-through with your real estate agent near closing day to ensure the property is in the expected condition.

During closing day, you will review and complete a variety of paperwork that finalizes your home purchase. Among the documents you need to sign are the following:

• Final loan application: This document confirms the loan details you and your lender have agreed upon. It is crucial to ensure all information is accurate before signing.
• Deed transfer: This legal document transfers ownership of the property from the seller to you, the buyer. It is essential to verify that all details match the agreed-upon terms of sale.
• Promissory mortgage note: This is your legal promise to repay the loan under the specified terms. It outlines the repayment schedule, interest rate, and penalties for default.
• Homeowners insurance: homeowners insurance in Delaware covers your new home against potential risks like fire, theft, and natural disasters. In Delaware, it provides a safeguard for your investment and peace of mind.

When purchasing a home, you will encounter closing costs, which are fees paid at the end of a real estate transaction. In Delaware, the average closing costs are $3,647, according to NAR. These costs can include several fees:

• Appraisal fee: This fee pays for a professional evaluation of the property's market value.
• Title search and insurance fee: This covers the cost of verifying the property's ownership history and insuring against any claims to the title.
• Escrow deposit: This is an account set up to pay property taxes and insurance premiums.
• Prepaid costs: These are upfront payments for future expenses, such as homeowner's insurance and property taxes.
• Other closing costs: This includes various additional fees such as attorney fees, recording fees, and more.

If you are a first-time homebuyer, learning about the different first-time homebuyer programs in Delaware can help you achieve homeownership faster.

Buying a house in Delaware represents a long-term financial commitment. We addressed frequently asked questions about purchasing a home in Delaware to help you start your homebuyer journey.